South Korean Steelmakers’ Profit Margin Is Falling

Posted on 26 April 2019

Source: Business Korea

South Korean steelmakers are in a dilemma as they cannot raise the prices of their products despite rising raw material prices.

The price of iron ore powder arriving in China from Australia rose from US$72.2 to US$92 per ton for the first four months of this year. This is because major iron ore suppliers such as Vale and Rio Tinto reduced their shipments in the wake of the dam collapse in Brazil in January and the cyclone that hit Western Australia last month.

The supply from Rio Tinto is estimated to decrease by 14 million tons this year. The dam collapse is predicted to result in a decline of 90 million tons. Besides, Chinese steelmakers are hoarding the material, accelerating the price rise.

In the meantime, the price of South Korean steelmakers’ hot-rolled products edged up from 700,000 won to 710,000 won per ton during the four months. In addition, the price of their thick plate products fell a little.

They are failing to reflect the raw material price rise in their product prices because their clients including automakers, shipbuilders and builders are struggling. Kia Motors recently asked Hyundai Steel to cut the price of automotive steel sheets by about 20,000 won per ton. Hyundai Steel’s annual supply to Hyundai Motor Group is about five million tons. In other words, the steelmaker’s losses will increase by 100 billion won or more if it accepts the request.

POSCO announced in January that it would raise the price of its thick plates supplied to shipbuilders, but the company is yet to put the declaration into practice amid the clients’ opposition. The Korea Offshore & Shipbuilding Association released an official statement against the price adjustment last month. Construction firms, which buy rebars, cold-rolled steel sheets and plated steel sheets in quantity, are maintaining the same stance amid adverse market conditions.